Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Best Buy Co. Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,817 – 20.21% × 7,721 = 1,257
An analysis of the economic performance from January 2017 to January 2022 reveals a significant expansion in value creation, culminating in a substantial increase in economic profit during the final year of the period.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited a generally upward trajectory after an initial decline in February 2018. From a low of 1,296 million US$ in 2018, the figure grew consistently, reaching 2,817 million US$ by January 2022. This represents a marked increase in operational efficiency and profitability over the five-year span.
- Invested Capital
- Invested capital demonstrated volatility, characterized by a reduction in 2018 to 5,407 million US$, followed by a period of steady growth that peaked at 9,079 million US$ in January 2021. In the final period ending January 2022, a contraction is observed, with invested capital decreasing to 7,721 million US$, suggesting a refinement of the capital base or a divestment of less productive assets.
- Cost of Capital
- The cost of capital remained relatively stable throughout the period, fluctuating within a narrow band between 18.42% and 20.72%. The persistence of a high cost of capital indicates a demanding threshold for the return required to generate positive economic value.
- Economic Profit
- Economic profit experienced a period of decline and stagnation between 2017 and 2021, reaching a low of 148 million US$ in February 2019. However, a sharp reversal occurred in January 2022, where economic profit surged to 1,257 million US$. This spike is the result of the simultaneous increase in NOPAT and the reduction in invested capital, indicating a significant improvement in the efficiency of capital utilization relative to the cost of capital.
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Net Operating Profit after Taxes (NOPAT)
Best Buy Co. Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for uncollectible receivables.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in restructuring accrual.
5 Addition of increase (decrease) in equity equivalents to net earnings.
6 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,709 × 2.50% = 68
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 93 × 21.00% = 19
8 Addition of after taxes interest expense to net earnings.
9 Elimination of discontinued operations.
The financial trajectory from 2017 to 2022 is characterized by an initial contraction followed by a period of sustained and accelerating growth in both operational and bottom-line profitability. Both Net Operating Profit After Taxes (NOPAT) and net earnings experienced a synchronized decline in 2018 before entering a consistent upward trend through 2022.
- Net Operating Profit After Taxes (NOPAT) Trends
- NOPAT decreased from US$ 1,602 million in 2017 to US$ 1,296 million in 2018. Following this dip, the metric grew steadily for five consecutive years, reaching US$ 2,817 million by January 29, 2022. This growth indicates a substantial expansion in the company's ability to generate profit from its core operations after tax, independent of its capital structure.
- Net Earnings Performance
- Net earnings mirrored the operational trend, falling from US$ 1,228 million in 2017 to a low of US$ 1,000 million in 2018. The subsequent recovery was marked by significant gains, particularly between 2021 and 2022, where earnings rose from US$ 1,798 million to US$ 2,454 million, representing the most rapid year-over-year increase in the observed period.
- Comparative Operational Efficiency
- A consistent positive variance is observed between NOPAT and net earnings throughout the entire period. NOPAT remained higher than net earnings in every reporting year, confirming that operating performance consistently outperformed final net income. This gap suggests the presence of non-operating expenses, such as interest costs or other financial obligations, that reduced the net earnings relative to the operational profit generated.
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Cash Operating Taxes
Best Buy Co. Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
The financial data reveals a period of volatility in tax obligations between 2017 and 2022, characterized by a significant peak in 2018 followed by a sharp correction and subsequent stabilization. The relationship between accrual-based tax expenses and actual cash outflows indicates fluctuations in the timing of tax payments and potential impacts from deferred tax adjustments.
- Income Tax Expense Trends
- Tax expenses experienced a sharp increase from $609 million in 2017 to a peak of $818 million in 2018. This was followed by a substantial decline to $424 million in 2019, representing a nearly 48% decrease from the previous year's high. From 2020 onward, expenses trended upward, stabilizing between $574 million and $579 million in the final two years of the period.
- Cash Operating Tax Trends
- Cash tax outflows closely mirrored the trajectory of reported expenses, reaching a period high of $720 million in 2018. Following this peak, cash taxes declined to a low of $415 million in 2020. A significant spike occurred in 2021, where cash taxes rose to $642 million, before moderating to $579 million in 2022.
- Comparison of Accrual vs. Cash Taxes
- A notable shift in the relationship between income tax expense and cash operating taxes is observed. In 2017 and 2018, the reported tax expense exceeded the actual cash taxes paid. Conversely, in 2019, 2021, and 2022, cash operating taxes surpassed the reported income tax expense. This divergence, particularly evident in 2021 where cash taxes were $63 million higher than the reported expense, suggests the realization of deferred tax liabilities or variations in the timing of tax settlements.
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Invested Capital
Best Buy Co. Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred revenue.
5 Addition of restructuring accrual.
6 Addition of equity equivalents to total Best Buy Co., Inc. shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of marketable securities.
The financial trajectory between 2017 and 2022 reveals a period of significant fluctuation in the capital structure, characterized by a high degree of stability in debt obligations contrasted with substantial volatility in shareholders' equity and total invested capital.
- Invested Capital Analysis
- Invested capital followed a non-linear trend over the six-year period. After an initial decrease from US$ 6,613 million in 2017 to US$ 5,407 million in 2018, a consistent growth phase was observed, peaking at US$ 9,079 million in 2021. This upward trajectory was reversed in 2022, with invested capital contracting to US$ 7,721 million.
- Debt and Lease Obligations
- Total reported debt and leases remained remarkably stable, showing minimal variance. The balance hovered around the US$ 4 billion mark throughout the entire period, starting at US$ 3,940 million in 2017 and ending at US$ 3,938 million in 2022. This suggests a consistent approach to leverage and lease financing regardless of broader capital fluctuations.
- Shareholders' Equity Volatility
- Shareholders' equity exhibited the highest level of variance among the analyzed metrics. A significant decline occurred between 2017 (US$ 4,709 million) and 2019 (US$ 3,306 million). While a recovery was observed peaking in 2021 at US$ 4,587 million, the period ended with a sharp reduction to US$ 3,020 million in 2022, the lowest point in the analyzed timeframe.
The divergence between the steady debt levels and the volatile equity figures indicates that the shifts in total invested capital were primarily influenced by equity changes and operational asset adjustments rather than changes in long-term borrowing or lease commitments.
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Cost of Capital
Best Buy Co. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,937) | 22,937) | ÷ | 26,891) | = | 0.85 | 0.85 | × | 23.33% | = | 19.90% | ||
| Total debt3 | 1,245) | 1,245) | ÷ | 26,891) | = | 0.05 | 0.05 | × | 3.02% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 2,709) | 2,709) | ÷ | 26,891) | = | 0.10 | 0.10 | × | 2.50% × (1 – 21.00%) | = | 0.20% | ||
| Total: | 26,891) | 1.00 | 20.21% | ||||||||||
Based on: 10-K (reporting date: 2022-01-29).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,553) | 29,553) | ÷ | 33,737) | = | 0.88 | 0.88 | × | 23.33% | = | 20.44% | ||
| Total debt3 | 1,479) | 1,479) | ÷ | 33,737) | = | 0.04 | 0.04 | × | 2.79% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 2,705) | 2,705) | ÷ | 33,737) | = | 0.08 | 0.08 | × | 2.90% × (1 – 21.00%) | = | 0.18% | ||
| Total: | 33,737) | 1.00 | 20.72% | ||||||||||
Based on: 10-K (reporting date: 2021-01-30).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,026) | 13,026) | ÷ | 17,184) | = | 0.76 | 0.76 | × | 23.33% | = | 17.68% | ||
| Total debt3 | 1,360) | 1,360) | ÷ | 17,184) | = | 0.08 | 0.08 | × | 5.02% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 2,798) | 2,798) | ÷ | 17,184) | = | 0.16 | 0.16 | × | 3.30% × (1 – 21.00%) | = | 0.42% | ||
| Total: | 17,184) | 1.00 | 18.42% | ||||||||||
Based on: 10-K (reporting date: 2020-02-01).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,041) | 19,041) | ÷ | 23,054) | = | 0.83 | 0.83 | × | 23.33% | = | 19.27% | ||
| Total debt3 | 1,398) | 1,398) | ÷ | 23,054) | = | 0.06 | 0.06 | × | 4.89% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 2,615) | 2,615) | ÷ | 23,054) | = | 0.11 | 0.11 | × | 4.10% × (1 – 21.00%) | = | 0.37% | ||
| Total: | 23,054) | 1.00 | 19.87% | ||||||||||
Based on: 10-K (reporting date: 2019-02-02).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,485) | 19,485) | ÷ | 23,592) | = | 0.83 | 0.83 | × | 23.33% | = | 19.27% | ||
| Total debt3 | 1,412) | 1,412) | ÷ | 23,592) | = | 0.06 | 0.06 | × | 5.12% × (1 – 33.70%) | = | 0.20% | ||
| Operating lease liability4 | 2,695) | 2,695) | ÷ | 23,592) | = | 0.11 | 0.11 | × | 4.26% × (1 – 33.70%) | = | 0.32% | ||
| Total: | 23,592) | 1.00 | 19.79% | ||||||||||
Based on: 10-K (reporting date: 2018-02-03).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,864) | 13,864) | ÷ | 17,886) | = | 0.78 | 0.78 | × | 23.33% | = | 18.08% | ||
| Total debt3 | 1,447) | 1,447) | ÷ | 17,886) | = | 0.08 | 0.08 | × | 5.53% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 2,575) | 2,575) | ÷ | 17,886) | = | 0.14 | 0.14 | × | 6.88% × (1 – 35.00%) | = | 0.64% | ||
| Total: | 17,886) | 1.00 | 19.02% | ||||||||||
Based on: 10-K (reporting date: 2017-01-28).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Best Buy Co. Inc., economic spread ratio calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 1,257) | 316) | 389) | 148) | 226) | 344) | |
| Invested capital2 | 7,721) | 9,079) | 7,649) | 7,210) | 5,407) | 6,613) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 16.28% | 3.48% | 5.09% | 2.05% | 4.17% | 5.21% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | -21.72% | -1.96% | — | — | — | — | |
| Home Depot Inc. | 21.37% | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 21.63% | 9.18% | — | — | — | — | |
| TJX Cos. Inc. | 4.25% | -12.60% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,257 ÷ 7,721 = 16.28%
4 Click competitor name to see calculations.
The financial performance from 2017 through 2022 is characterized by a period of volatility in value creation, culminating in a substantial acceleration of capital efficiency and profitability in the final period.
- Economic Spread Ratio
- A downward trend is observed between 2017 and 2019, during which the ratio declined from 5.21% to a low of 2.05%. While a recovery occurred in 2020, reaching 5.09%, the ratio experienced another contraction to 3.48% in 2021. This volatility concluded with an exceptional increase in 2022, where the ratio surged to 16.28%, indicating a significant expansion in the spread between the return on invested capital and the cost of capital.
- Economic Profit
- Economic profit followed a similar trajectory to the spread ratio, decreasing from 344 million in 2017 to a minimum of 148 million in 2019. A recovery phase was evident in 2020 and 2021, followed by a dramatic escalation in 2022, where economic profit reached 1,257 million. This peak represents a substantial increase in the absolute value created beyond the required return on capital.
- Invested Capital
- The invested capital base exhibited inconsistent movements, falling in 2018 before increasing steadily for three consecutive years to reach a peak of 9,079 million in 2021. In 2022, a reduction in invested capital to 7,721 million coincided with the sharp rise in economic profit, suggesting a marked improvement in asset productivity and capital utilization.
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Economic Profit Margin
Best Buy Co. Inc., economic profit margin calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 1,257) | 316) | 389) | 148) | 226) | 344) | |
| Revenue | 51,761) | 47,262) | 43,638) | 42,879) | 42,151) | 39,403) | |
| Add: Increase (decrease) in deferred revenue | 392) | 210) | 55) | (7) | 35) | 61) | |
| Adjusted revenue | 52,153) | 47,472) | 43,693) | 42,872) | 42,186) | 39,464) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.41% | 0.67% | 0.89% | 0.34% | 0.53% | 0.87% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | -11.34% | -0.84% | — | — | — | — | |
| Home Depot Inc. | 6.79% | 4.60% | — | — | — | — | |
| Lowe’s Cos. Inc. | 5.88% | 2.91% | — | — | — | — | |
| TJX Cos. Inc. | 1.73% | -8.77% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 1,257 ÷ 52,153 = 2.41%
3 Click competitor name to see calculations.
Between fiscal years 2017 and 2022, a pattern of inconsistent economic profit performance is observed despite steady top-line growth. While adjusted revenue expanded consistently over the six-year period, the ability to generate value above the cost of capital fluctuated, ending with a significant surge in profitability efficiency.
- Economic Profit Trends
- Economic profit experienced a downward trajectory from 2017 to 2019, falling from 344 million US$ to a period low of 148 million US$. A recovery occurred in 2020, reaching 389 million US$, followed by a slight dip to 316 million US$ in 2021. The period concluded with a substantial increase in 2022, where economic profit peaked at 1,257 million US$, representing a sharp acceleration in value creation.
- Adjusted Revenue Growth
- A consistent upward trend in adjusted revenue is evident throughout the analyzed timeframe. Revenue grew from 39,464 million US$ in 2017 to 52,153 million US$ in 2022. This steady growth indicates a continuous expansion of the company's market scale and sales volume.
- Economic Profit Margin Analysis
- The economic profit margin mirrored the volatility of the absolute economic profit. The margin contracted from 0.87% in 2017 to a low of 0.34% in 2019, suggesting that the cost of capital was increasingly offsetting operational gains. However, a significant reversal occurred by 2022, when the margin reached 2.41%. This peak indicates that the growth in economic profit far outpaced the growth in revenue during the final year, reflecting a marked improvement in capital efficiency and value generation.
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